Friday, September 28, 2012

Xtep purchased

I have added a few more shares in Xtep (HK:1368) to the portfolio. This has been one of my more disappointing investments and my original purchase is currently sitting at well below cost (even after allowing for the strong dividend payments). However, the company has remained profitable, produces good cash flow and has a strong balance sheet (net cash). Even if earnings decline somewhat as the industry continues to go through a consolidation phase, I expect that the shares will offer good value at current levels.

As an aside, it was a bit disappointing to see the shares jump after a broker put out a bullish report on the whole sector this morning. I ended up paying an average of HK$2.79 per share (including costs). If they drop back a bit next week, I will consider buying a few more.


Anonymous said...


Why no Peak Sport or 361?

Anonymous said...


I looked at five sportswear companies. My simplified thinking process:

Peak Sport (1968): the strongest cash backing realtive to market cap. However, also the smallest and had negative operating cash flow in the last interim results

Anta (2020): good net cash balance, positive operating cash flow, good operating margin but high market cap relative to turnover

Li Ning (2331): the only one with net debt. Also negaitive operating cash flow and weakest profit margin in the last interim results

Xtep (1368): good cash balance, postive operating cash flow, good profit margin, average turnover relative to market cap

361 (1361): very good cash balance, best positive operating cash flow and good profit margin, low turnover to market cap

I eliminated Li Ning based on its balance sheet, Peak Sport based on its negative cash flow from operations (although it does have the best cash backing) and Anta appeared to be the most expensive on all measures other than profit margin. 361 actually looked a bit cheaper on paper than Xtep but I have been reading Xtep's reports etc for a few years now and feel I have a greater understandig of the company.

I'd be interested in hearing your views.